Up to our eyeballs?

Honolulu City and County is in the hole for $3 billion. Is it too much?

By Michael Keany

Published: 2010.03.15 09:46 PM

Photo: Michael Keany

In Mufi Hannemann’s first state of the city address in February, he took the previous administration to task for its prodigal spending. The legacy of the Harris administration, he pointed out, was a record $2.8 billion debt—“$3,000 for every man, woman and child in the City and County of Honolulu.” Honolulu’s debt service in the 2006 fiscal year will be more than $234 million, almost 18 percent of the total annual budget.

That sounds like a lot of money. Is it too much?

Debt is not an inherently bad thing. Municipalities go into debt to build infrastructure for future growth in much the same way a family takes on a several hundred thousand dollar mortgage for a house. For a full picture of financial health, a city’s debt level needs to be weighed against its revenues and assets.

Hawaii’s state constitution limits the debt of each county in Hawaii to 15 percent of the net assessed value of property in that county. Honolulu could owe as much as $17 billion without hitting that limit.

However, legal limits don’t necessarily make for common sense. Lowell Kalapa, president of the Tax Foundation of Hawaii, argues that the debt limit is archaic, and way too high.

He advocates reforming the formula to one similar to the state’s, which caps debt service to 18.5 percent of average general fund revenues for the past three years. If Honolulu adopted that limit—well, we’d be straining against it already.

In addition to being well under the current constitutional limit, the city’s almost $3 billion debt load isn’t hurting its bond ratings (the municipal equivalent of your own credit rating). Honolulu’s ratings are actually pretty good. Moody’s, one of the nation’s largest analyst companies, gives us an AA2 rating, which signifies “very strong creditworthiness relative to other U.S. municipal or tax-exempt issuers.”

“Based on the ratings I’ve seen, there shouldn’t be any particular difficulty in raising funds for well-thought-out infrastructure projects,” Bank of Hawaii chief economist Paul Brewbaker says. He’s not losing any sleep over the city’s financial situation. “I don’t think debt levels need to be a constraint on an administration fulfilling the political will of the people.”

Of course, part of the reason for the rosy bond ratings is that, unlike private businesses, the government can increase its revenues any time it wants, simply by raising taxes. Municipal analysts look at Honolulu’s real property tax rates and see a lot of room to grow: Compared with the largest cities of every other state, Honolulu comes in dead last in property-tax rates.

There’s a reason for that, of course—we pay less in county taxes because we pay more in state taxes. Unlike just about anywhere else in the United States, Hawaii’s schools are funded by the state, rather than the county. Honolulu City and County charges us less because it offers us fewer public services.

Honolulu’s unique school system makes debt-level comparisons with Mainland counties difficult, but Hawaii’s total per capita debt load, state and county combined, is not terribly out of whack with national standards. At $6,500 per person, it’s about $1,000 higher than the national average.

A thousand dollars sounds bad, until you find out Alaska’s per capita debt load is more than $11,000. That turns out to be a reasonable amount, actually, because the huge sums of money it has invested in oil infrastructure are offset by correspondingly large revenues from petroleum sales.

In any case, Honolulu’s revenues are increasing—translation: you’re paying more—even without property-tax rate increases. Real property assessments have jumped 26 percent over the past year. “Property values keep going up, and so do tax revenues,” says Brewbaker. “As long as the city resists the urge to give away that money, I don’t think we’re in too bad a shape.”

Still, not everyone is reassured. City Council budget chairperson Ann Kobayashi says Honolulu should ideally be spending only 9 percent to 11 percent of its annual budget paying down debt, but she doesn’t see Honolulu reaching that target for a long time. According to city estimates, debt service will total $389 million a year by 2011, almost a quarter of the annual operating budget.

“Right now, it’s very hard to stop more borrowing,” she says. “Our sewers have to be repaired, our parks have to be maintained, our roads have to be patched. I do think we have to limit our borrowing to those projects that concern our core services.”

It’s no small task running up $2.8 billion in debt, but you don’t have to limit yourself to huge, boondoggle projects. Every little bit helps. Here are a few ways the Harris administration spent your tax dollars.

In 2002, the city bought 990 trash receptacles without calling for competitive bids, at a total cost of $666,841. That’s an average of $674 per trash can. Perfectly good alternatives exist at half the price; the city auditor estimates that competitive bidding could have saved the city $300,000.

In December 2001, the city called for bids to spruce up TheBus fleet, replacing the drab brown and orange scheme with bold rainbow decals. Nice. But the city specified that the bus decals had to be 3M Scotchprint vinyl applique, and no other, which narrowed the bidding field to one: the only 3M authorized manufacturer and installer in the state. With no competitive bidding, the bill totaled $433,432 for 91 buses, almost $5,000 for each splash of aloha.

As part of TheBus improvements, the city bought money-saving, fuel-efficient hybrid buses. Then, to make sure you’d notice them, they spent $217,710 painting them gray—almost $22,000 per paint job. Even worse, because this decision was made at the last minute, three of the diesel-electric buses had already gotten the aforementioned expensive rainbow appliques.

Source: Audit of the City’s Sole Source, Emergency and Professional Services Procurement Practices, from the Office of the City Auditor.